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A dynamic panel analysis of the profitability of Australian tax entities

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Abstract

This paper investigates the determinants of profitability of Australian tax entities using data for 91 different industries over the period 1991/92 to 1996/97. A simple oligopoly model is augmented with lagged profitability to allow for persistence of profitability shocks. The Wansbeek-Bekker estimator is used to control for endogeneity of this lagged dependent variable, whilst simultaneously controlling for observed and unobserved entity heterogeneity. Aggregate results suggest that profitability in the previous year, capital intensity, and barriers to entry have the expected positive association with current profitability. Market share—and to a lesser extent concentration—have a U shaped relationship with profitability.

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Authors and Affiliations

  1. School of Economics and Finance, RMIT University, Melbourne, Australia

    Simon Feeny

  2. Department of Econometrics and Business Statistics, Monash University, Clayton, Victoria, 3800, Australia

    Mark N. Harris

  3. Harris Manchester College, Oxford University, Mansfield Road, OX1 3TD, Oxford, UK

    Mark Rogers

  4. Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Victoria, 3010, Australia

    Mark Rogers

Authors
  1. Simon Feeny
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  2. Mark N. Harris
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  3. Mark Rogers
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Corresponding author

Correspondence to Mark N. Harris.

Additional information

This paper is the result of work being undertaken as part of a collaborative research program entitled ‘The Performance of Australian Enterprises: Innovation, Productivity and Profitability’. This project is generously supported by the Australian Research Council and the following collaborative partners: The Australian Tax Office, Commonwealth Office of Small Business, IBIS Business Information Pty Ltd, Productivity Commission, and Victorian Department of State Development. The views expressed in this paper represent those of the authors and not necessarily the views of the collaborative partners. We are grateful to Badi Baltagi, David Prentice, John Creedy and two anonymous referees for helpful comments.

First version received: December 2001 / Final version received: December 2003

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Feeny, S., Harris, M.N. & Rogers, M. A dynamic panel analysis of the profitability of Australian tax entities. Empirical Economics 30, 209–233 (2005). https://doi.org/10.1007/s00181-004-0230-8

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  • DOI: https://doi.org/10.1007/s00181-004-0230-8

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